Mirages in development – the 2% CSR mandate

The development sector, in its usual course, lurches from one trend to the other. On its way, it throws up a variety of mirages, which succeed in capturing the attention of policymakers and the public for brief spells. The most famous of those today is the one about the black money stashed away in tax havens around the world. The estimates vary, but the narrative goes that if this money was brought back home, poverty could be reduced. Thankfully, not too many people seem to have been taken in by this fantasy. However, this is a great example of a mirage—the promise of untold riches round the corner. The main problem with this is that its proponents assume that they know how best to use funds for development. Still, it makes for a populist story and is easy to sell for a narrow agenda.

In recent days, we have also seen plenty of debate over the clause in the proposed Companies Bill 2011 that mandates 2% corporate social responsibility (CSR) spending. According to the Bill, “Every company having net worth of Rs500 crore or more, or a turnover of Rs1,000 crore or more, or a net profit of Rs5 crore or more, during any fiscal year shall constitute a CSR committee of the board consisting of three or more directors, of which at least one director shall be an independent director”. Further, the Bill states that those companies that do not attain their CSR targets would be required to explain why.

Let us for now naively assume that companies would comply with this directive rather than find ways around it through creative accounting. In fact, the greater risk is that of being swamped by a multitude of small “me-too” projects that satisfy the personal whims and fancies of senior corporate executives. What will get lost in the process is a focus on what works in development. Note that the proposed Bill has little to say about the agenda for development spending—it is only about “how much” and not “how”. Civil society, therefore, would do well not to get its hopes up from these promises of enhanced CSR spending.

Proposals such as these are couched in a general belief that profit-seeking corporations should give back to communities, thereby taking more of an ideological slant, rather than an objective assessment of how these funds are best used in development to create value. Rather than depend on the largesse of profit-seeking enterprises, we should look at ways to make them accountable to society at large. This is an old and boring point, but ethical businesses go further towards improving the lives of the poor than a few crores doled out in the name of CSR.

The 10 principles of the United Nations Global Compact (UNGC) cover the areas of human rights, labour, the environment and anti-corruption. Think about it—better working conditions in factories, effective waste/effluent management, lower carbon emissions, fair compensation for the displaced, compliance with laws in procurements, etc, by companies (and enforcement of the same by the government) would yield substantial dividends. That, however, requires a change in the system whereas the proposed quick fix is perhaps a more publicity-friendly move—one that probably suits both businesses and the political class.

Such mirages are to be found on the global stage as well. There is the Millennium Villages movement led by Columbia professor Jeffrey Sachs that would like us to believe that merely more money could solve the problems of global poverty. The financial transactions tax is another example of an idea that could raise considerable resources for global development.

These ideas do not lack in good intent. One might also argue that these are big picture ideas that are critical to changing mindsets that could revolutionize development interventions. However, it is difficult to buy this argument in isolation, when the most pressing question that has confronted us over the last decade or so has been regarding effective utilization of available development funds. If there is anything we have learnt from the recent focus on impact assessments, it is that good intentions alone do not translate into successful ones. Let us, therefore, focus our energies on learning and putting into practice “what works” in development. That is far more urgent than cajoling companies to be more charitable.